Jose Antonio Medina, nicknamed "Don Pepe," was arrested in the western state of Michoacan on Wednesday and is being held for prosecution, said Ramon Pequeno, head of the anti-narcotics division of Mexico's federal police.

The White House National Drug Threat Assessment says that while heroin use is stable or decreasing in the U.S., the source of the drug has shifted in recent years from Colombia - where production and purity are declining - to Mexico, where powerful drug cartels are gaining a foothold in the lucrative market.

Border Patrol agents seized 4.8 million pounds of narcotics at border crossings last year, and heroin seizures saw the most significant increase during that time, with a 316 percent jump over 2008.

Mexico and the U.S. are working together to counter a handful of increasingly violent drug cartels that supply most of the illicit drugs sold in the U.S. each year. The arrest came the day after top U.S. Cabinet officials, led by Secretary of State Hillary Rodham Clinton, visited Mexico to underscore their shared responsibility for the country's drug-related violence.

Nearly 17,900 people have died in drug-related violence since President Felipe Calderon launched an assault on cartels after taking office in December 2006.

That violence continued Thursday in Ciudad Juarez, a border city of 1.3 million just south of El Paso, where police on Thursday found a decapitated man lying in a shopping center parking lot, his head inside a black plastic bag nearby.

Killings such as this are believed to be the result of drug cartels fighting among themselves for control of the drug trade, a lucrative business estimated to bring $25 billion in cash into Mexico each year.

Federal police in Mexico City said Thursday they had seized $1.7 million in small bills and arrested four men, two Colombians and two Mexicans, for allegedly running financial operations for cartels.